Internal Damage is a special sort of Armor-Negating Damage that hits a poor fellow from the inside out. It is extra tough to prevent; Elemental Resistances that line up can reduce the damage, but that's about it. Mossbody and Mistform don't reduce the damage, for example.
The following deal "internal" damage:
Note that the things Internal Damage bypasses are generally not strong enough to prevent an "instakill" from instantly killing, even with Luck.
Set damage that doesn't get a DRN roll to increase or decrease it, also known as "true" damage, is also internal.